Internal Revenue Bulletin:  2004-49 

December 6, 2004 

Rev. Proc. 2004-70


SECTION 1. PURPOSE

This revenue procedure prescribes the salvage discount factors for the 2004 accident year. These factors must be used to compute discounted estimated salvage recoverable under § 832 of the Internal Revenue Code.

SECTION 2. BACKGROUND

Section 832(b)(5)(A) requires that all estimated salvage recoverable (including that which cannot be treated as an asset for state accounting purposes) be taken into account in computing the deduction for losses incurred. Under § 832(b)(5)(A), paid losses are to be reduced by salvage and reinsurance recovered during the taxable year. This amount is adjusted to reflect changes in discounted unpaid losses on nonlife insurance contracts and in unpaid losses on life insurance contracts. An adjustment is then made to reflect any changes in discounted estimated salvage recoverable and in reinsurance recoverable.

Pursuant to § 832(b), the amount of estimated salvage is determined on a discounted basis in accordance with procedures established by the Secretary.

SECTION 3. SCOPE

This revenue procedure applies to any taxpayer that is required to discount estimated salvage recoverable under § 832.

SECTION 4. APPLICATION

.01 The following tables present separately for each line of business the discount factors under § 832 for the 2004 accident year. All the discount factors presented in this section were determined using the applicable interest rate under § 846(c) for 2004, which is 4.82 percent, and by assuming all estimated salvage is recovered in the middle of each calendar year. See Rev. Proc. 2003-18, 2003-1 C.B. 439, for background regarding the tables.

.02 These tables must be used by taxpayers irrespective of whether they elected to discount unpaid losses using their own historical experience under § 846.

.03 Section V of Notice 88-100, 1988-2 C.B. 439, provides a composite discount factor to be used in determining the discounted unpaid losses for accident years that are not separately reported on the NAIC Annual Statement. The tables separately provide discount factors for taxpayers who elect to use the composite method. Rev. Proc. 2002-74, 2002-2 C.B. 980, clarifies that for certain insurance companies subject to tax under § 831 the composite method for discounting unpaid losses set forth in Notice 88-100, section V, 1988-2 C.B. 419, is permitted but not required. This revenue procedure further provides alternative methods for computing discounted unpaid losses that are permitted for insurance companies not using the composite method, and sets forth a procedure for insurance companies to obtain automatic consent of the Commissioner to change to one of the methods described in Rev. Proc. 2002-74.

.04 Tables.

Tables of Factors to be Used to Discount Salvage Recoverable With Respect to Losses Incurred in Accident Year 2004
(Interest rate: 4.82 percent)
Accident and Health (Other Than Disability Income or Credit Disability Insurance)
Taxpayers that do not use the composite method of Notice 88-100 should use 97.6738 percent to discount salvage recoverable with respect to losses incurred in this line of business in the 2004 accident year as of the end of the 2004 and later taxable years.
Taxpayers that use the composite method of Notice 88-100 should use 97.6738 percent to discount all salvage recoverable in this line of business as of the end of the 2004 taxable year.
Auto Physical Damage
Tax Year Discount Factors (%)
   
 2004 96.5590
 2005 95.4281
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2006 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 97.6738 percent to discount salvage recoverable as of the end of the 2006 taxable year with respect to losses incurred in this line of business in 2004 and prior years.
Commercial Auto/Truck Liability/Medical
Tax Year Discount Factors (%)
   
 2004 90.6645
 2005 90.3669
 2006 90.1327
 2007 90.6408
 2008 91.1785
 2009 90.5988
 2010 91.8814
 2011 92.9935
 2012 93.2915
 2013 95.4594
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2014 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 97.6738 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2004 and prior years.
Composite
Tax Year Discount Factors (%)
   
 2004 90.5683
 2005 89.2161
 2006 88.6645
 2007 88.0367
 2008 86.8142
 2009 86.8926
 2010 86.6271
 2011 86.5809
 2012 86.7177
 2013 88.6805
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2014 90.6998
 2015 92.7729
 2016 94.8883
 2017 96.9880
 2018 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 91.9391 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2004 and prior years.
Fidelity/Surety
Tax Year Discount Factors (%)
   
 2004 93.1746
 2005 95.4281
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2006 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 97.6738 percent to discount salvage recoverable as of the end of the 2006 taxable year with respect to losses incurred in this line of business in 2004 and prior years.
Financial Guaranty/Mortgage Guaranty
Tax Year Discount Factors (%)
   
 2004 94.6749
 2005 95.4281
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2006 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 97.6738 percent to discount salvage recoverable as of the end of the 2006 taxable year with respect to losses incurred in this line of business in 2004 and prior years.
International (Composite)
Tax Year Discount Factors (%)
   
 2004 90.5683
 2005 89.2161
 2006 88.6645
 2007 88.0367
 2008 86.8142
 2009 86.8926
 2010 86.6271
 2011 86.5809
 2012 86.7177
 2013 88.6805
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2014 90.6998
 2015 92.7729
 2016 94.8883
 2017 96.9880
 2018 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 91.9391 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2004 and prior years.
Medical Malpractice — Claims-Made
Tax Year Discount Factors (%)
   
 2004 85.5093
 2005 80.4030
 2006 85.5474
 2007 82.9525
 2008 84.0312
 2009 77.9665
 2010 88.7516
 2011 91.9419
 2012 95.7422
 2013 97.6738
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2014 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 97.6738 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2004 and prior years.
Medical Malpractice — Occurrence
Tax Year Discount Factors (%)
   
 2004 81.0996
 2005 82.3752
 2006 86.3279
 2007 87.9623
 2008 74.2782
 2009 85.2215
 2010 90.8308
 2011 94.1660
 2012 96.0748
 2013 97.6738
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2014 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 97.6738 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2004 and prior years.
Miscellaneous Casualty
Tax Year Discount Factors (%)
   
 2004 96.0374
 2005 95.4281
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2006 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 97.6738 percent to discount salvage recoverable as of the end of the 2006 taxable year with respect to losses incurred in this line of business in 2004 and prior years.
Multiple Peril Lines (Homeowners/Farmowners, Commercial Multiple Peril, and Special Liability (Ocean Marine, Aircraft (All Perils), Boiler and Machinery))
Tax Year Discount Factors (%)
   
 2004 91.6039
 2005 89.7492
 2006 90.5601
 2007 90.2475
 2008 89.8022
 2009 91.1562
 2010 91.2128
 2011 91.4205
 2012 93.1099
 2013 95.2655
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2014 97.4556
 2015 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 97.4560 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2004 and prior years.
Other (Including Credit)
Tax Year Discount Factors (%)
   
 2004 96.2479
 2005 95.4281
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2006 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 97.6738 percent to discount salvage recoverable as of the end of the 2006 taxable year with respect to losses incurred in this line of business in 2004 and prior years.
Other Liability — Claims-Made
Tax Year Discount Factors (%)
   
 2004 90.0420
 2005 80.0175
 2006 65.1028
 2007 87.1628
 2008 83.2875
 2009 82.4626
 2010 89.1681
 2011 92.9417
 2012 89.5057
 2013 91.5434
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2014 93.6283
 2015 95.7330
 2016 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 94.7277 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2004 and prior years.
Other Liability — Occurrence
Tax Year Discount Factors (%)
   
 2004 84.4755
 2005 85.9883
 2006 87.1531
 2007 83.6055
 2008 87.3020
 2009 89.9297
 2010 90.3252
 2011 92.5157
 2012 93.9128
 2013 95.9821
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2014 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 97.6738 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2004 and prior years.
Private Passenger Auto Liability/Medical
Tax Year Discount Factors (%)
   
 2004 93.7245
 2005 93.5180
 2006 93.2272
 2007 92.3657
 2008 92.1360
 2009 91.0524
 2010 90.9939
 2011 91.0582
 2012 92.3235
 2013 94.4076
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2014 96.4598
 2015 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 96.6736 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2004 and prior years.
Products Liability — Claims-Made
Tax Year Discount Factors (%)
   
 2004 85.9966
 2005 86.0537
 2006 87.7977
 2007 7.9001
 2008 79.1822
 2009 85.8894
 2010 90.6864
 2011 95.0912
 2012 25.2668
 2013 95.5221
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2014 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 97.6738 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2004 and prior years.
Products Liability — Occurrence
Tax Year Discount Factors (%)
   
 2004 80.0842
 2005 82.8436
 2006 83.5123
 2007 86.2999
 2008 83.5735
 2009 87.2379
 2010 90.4562
 2011 91.2267
 2012 85.5469
 2013 87.4740
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2014 89.4572
 2015 91.4954
 2016 93.5825
 2017 95.6945
 2018 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 92.6255 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2004 and prior years.
Reinsurance A (Nonproportional Assumed Property)
Tax Year Discount Factors (%)
   
 2004 85.3031
 2005 82.2450
 2006 86.5640
 2007 90.4906
 2008 91.1611
 2009 92.9938
 2010 94.8571
 2011 96.1798
 2012 96.7980
 2013 97.6738
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2014 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 97.6738 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2004 and prior years.
Reinsurance B (Nonproportional Assumed Liability)
Tax Year Discount Factors (%)
   
 2004 84.7610
 2005 82.3424
 2006 85.7505
 2007 83.4780
 2008 76.1754
 2009 79.9172
 2010 79.2255
 2011 81.5908
 2012 76.2736
 2013 84.1702
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2014 86.3467
 2015 88.6896
 2016 91.2606
 2017 94.1745
 2018 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 87.7819 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2004 and prior years.
Reinsurance C (Nonproportional Assumed Financial Lines)
Tax Year Discount Factors (%)
   
 2004 84.4808
 2005 85.2596
 2006 88.9070
 2007 86.2016
 2008 89.5553
 2009 82.3408
 2010 85.6757
 2011 92.8358
 2012 94.2578
 2013 96.3087
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2014 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 97.6738 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2004 and prior years.
Special Property (Fire, Allied Lines, Inland Marine, Earthquake, Glass, Burglary and Theft)
Tax Year Discount Factors (%)
   
 2004 93.6220
 2005 95.4281
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2006 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 97.6738 percent to discount salvage recoverable as of the end of the 2006 taxable year with respect to losses incurred in this line of business in 2004 and prior years.
Workers’ Compensation
Tax Year Discount Factors (%)
   
 2004 85.3979
 2005 86.7440
 2006 87.2113
 2007 87.1308
 2008 86.4289
 2009 87.2964
 2010 87.0843
 2011 87.2655
 2012 88.1306
 2013 90.1258
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2004 accident year.
   
 2014 92.1703
 2015 94.2492
 2016 96.3002
 2017 and later years 97.6738
   
Taxpayers that use the composite method of Notice 88-100 should use 93.3819 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2004 and prior years.

DRAFTING INFORMATION

The principal author of this revenue procedure is Katherine A. Hossofsky of the Office of the Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue procedure, contact Ms. Hossofsky at (202) 622-8435 (not a toll-free call).


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